Harvard Business School Case Study: Nordstrom: Dissension in the Ranks?

The story of Nordstrom is one of a classic conflict between two competing business philosophies:

1) That one needs to do whatever is necessary to be effective and make the sale because business depends on it and

2) That employees should be able to work their scheduled hours, leave the job behind when they punch out and let their employer worry about the rest.

Business philosophy number 1 was Nordstrom’s operating philosophy and they applied it to their salespeople; treating them similar to independent contractors. This type of situation is often encountered (and encouraged) with white collar, salaried employees. Business philosophy number 2 is often encountered in situations involving blue collar, hourly employees. Our society (and the precedence of the law) seems to be comfortable with these two philosophies being applied separately to each of the aforementioned groups, but when the line gets blurred it becomes more contentious, as Nordstrom soon found out.

Nordstrom was historically well-respected for posting impressive financial numbers and having quality employees that “went the extra mile” to provide exceptional customer service. Their salespeople were hourly employees who could increase their earnings by increasing their “sales per hour”—a number that was calculated for each employee and made public. This public compensation program, combined with other systemic issues such as a decentralized management system and a lack of clear guidance for middle managers eventually manifested as various problems in employees attitudes and behaviors. An unhealthy competition among salespeople, including stealing of others sales, contributed to a drop in morale. The decentralized management and lack of clear guidance for middle managers created inconsistencies in the system and abuses such as managers creating, in the salespeople, a sense that their job was always in jeopardy and that they needed to work “off the clock” to get their numbers up. The Nordstrom system seemed to have attempted to give equal emphasis to the oft-conflicting goals of service, profitability and middle-management autonomy which manifested in these various deleterious attitudes and behaviors in the employees.

Ultimately, Nordstrom problems affected their bottom line: they suffered public perception problems and were sued and had to reimburse sales people for back pay for hours worked “off the clock”—to the tune of millions of dollars.

Lessons:

Sometimes a decentralized system of management, especially when combined with unclear direction from upper managers to middle managers, is not a good thing.

There are different (and distinct) levels of professionalism among different types of employees (i.e. professional, salaried versus non-professional, hourly). Each has different expectations in the way they should be treated and a blurring of these well-established and distinct lines manifests in undesirable attitudes and behaviors of the employees, society and the legal system.